Ahead of the Game

The conventional wisdom is that Canada avoided the worst of the financial crisis and resulting recession because of its innate conservatism and aversion to risk. While that fits the widespread stereotype of Canadians, the reality is a little different.

Canada owes at least as much to its traditional focus on business fundamentals. Moreover, recent Canadian corporate law developments demonstrate that rapid change and innovation, and not conservatism, are the real driving forces in Canadian business today.

Mergers and acquisitions in Canada are changing, due to a trio of recent decisions:

The Ontario Securities Commission's (OSC) January 2009 decision in HudBay Minerals has led the Toronto Stock Exchange (TSX) to propose an amendment to its rules. Listed companies would be required to obtain shareholder approval for an acquisition of another public company if the transaction involves the issuance of more than 50% of the listed company’s outstanding shares. Sharon Geraghty believes this rule will come into force. "In the United States, you’d have to get approval in that context," she points out.

Second was the Ontario Superior Court of Justice’s January 2009 decision regarding Research in Motion's (RIM) hostile bid to buy Certicom, a case with important implications for negotiating terms of confidentiality agreements.

Finally, in its widely read December 2008 BCE decision, the Supreme Court of Canada ruled on directors' duties in change-of-control transactions. The court rejected the application of the duty to maximize shareholder value in the context of change-of-control transactions, in favour of acting in the best interests of the corporation. "On the positive side," says Sharon, "there’s broad leeway for the directors to exercise their business judgment." As a director, you owe your allegiance to the company, but "as long as you think about [everyone's interests], then you should have a lot of scope for discretion."

On the foreign investment side, the federal government has also taken steps to reduce the number of M&A transactions subject to the Investment Canada Act. The standard review threshold will be increased from C$295 million in assets to C$1 billion in enterprise value over the next five years.

"The government wants to make foreign investment easier and it’s doing that by bumping up thresholds," notes Omar Wakil.